We all need to save more if we are to enjoy a comfortable retirement. To encourage us, there are some extremely generous tax breaks on offer when you save in a company or personal pension scheme. You get tax relief on all contributions at the highest rate of income tax you normally pay (so you get back 23p or 40p for every pounds 1 you put into the pension).

And after the next election, the Government will be introducing stakeholder pensions, which will also qualify for generous tax breaks. These will be low-cost portable pensions we can take with us when we move from job to job. If you are not in any pension scheme at the moment and do not have the chance to be in a company scheme, it may be worth making alternative arrangements, such as saving in a PEP or a new ISA. This will allow you to build up a lump sum. You can then transfer it to a stakeholder or other pension scheme whenever you feel ready.

If you are already in a pension scheme, you should check what it offers and whether it would be worthwhile paying in more. Around 11 million people are members of company pension schemes, where contributions are paid by both the employer and the individual. The best of these, called final salary schemes, pay out a pension equal to two-thirds of the member's final working salary.

Many company schemes are now run as "money purchase" arrangements or as group personal pension schemes. These work in the same way as a personal pension; you have to save up in an underlying investment fund, providing a pool of money at retirement. The amount of money you get depends on how well your investments have performed. There is no link to your salary.

The other massive problem is that most of us will have to swap most of this money for a contract to provide an annual income when we retire. This is called an annuity and the amount you will get back depends on interest rates and the yields from ultra-safe government bonds called gilts. At the moment rates are very low. People retiring and buying an annuity are getting less than 4 per cent annual income from their retirement funds. So a person with pounds 300,000 saved in a pension fund would get just pounds 12,000 a year. This is unlikely to change and the Government's stakeholder pension plans do nothing to address the issue: another reason why you may want to keep control of some of your retirement cash rather than locking it away in a pension.

The current low annuity rates also make it foolish to accept the old- fashioned but widespread advice that you should move your money into "safer" funds in the years before your retirement. Most of us will need to keep generating as much growth as possible, right up to retirement.

Only those people who stay in a "final salary" pension scheme until they retire will escape the problem of plummeting annuity rates. Final salary schemes are run by large companies and by public sector bodies but because of the expense an increasing number are no longer providing new staff with final-salary schemes.

Whatever company scheme you are in, you might want to make additional voluntary contributions (AVCs). You can put up to 15 per cent of your salary into pension contributions, with tax relief at your top rate of income tax.

Alternatively, you can purchase free standing schemes (FSAVCs) from insurance companies and other pension providers. The rules are the same as for AVCs but do watch out, as these often carry high charges. The big downside to these payment schemes (outside final salary schemes) is you cannot take the cash at retirement as part of a lump sum. It has to be used towards a pension, so you may well run into the problem of low annuity rates.

You are probably better off using your extra money to invest in PEPs and Tessas while you can, or ISAs when they are introduced next April.

Meanwhile, if you are self-employed, you will have to rely upon a personal pension, which will also attract tax relief at the top rate of income tax: if you pay the higher rate of 40 per cent, putting pounds 5,000 a year into a personal pension will only cost pounds 3,000 after tax relief.

Because of the generous tax allowance, you can only put a limited percentage of your income (up to the earnings limit of pounds 88,400) in a personal pension. If you are between 36 and 45, for example, you can put in 20 per cent of your salary.

Some pension providers impose charges that can seriously affect performance and some have penalties if premiums are stopped or changed.

If you are looking for a personal pension and don't want to wait for a stakeholder scheme, you can buy from salespeople or advisers, or buy direct over the phone. A direct pension is worth looking at if you are confident about handling your financial affairs.

"The problem with many direct providers is that they only offer tracker funds as a way of building up your pension pot," says Roddy Kohn of Kohn Cougar, independent financial advisers. "This limits choice. And with just 15 companies in the FT-SE 100 accounting for over half the stock market's total worth, this could be a high-risk choice. You might want a wider choice of funds, including gilts, for peace of mind."

Some of the companies selling through their own salesmen or independent financial advisers offer decent pensions. Names to consider include Equitable Life, Scottish Equitable, Eagle Star, Norwich Union, Standard Life and Legal & General.

"In 1995, we changed our personal pensions to meet the needs of today," says Margaret Craig of Standard Life.

"We now offer pensions that provide a fair deal to all - not ones that just deliver at the end. We did this by spreading our charges over the life of the plan, instead of taking them up front."

The best pension funds will offer "waiver of premiums", insurance which covers your contributions if you are unable to work for a long period because of illness or accident.

Two big drawbacks with pension plans are that you cannot dip into your fund to meet emergency expenses and you have to decide on a retirement date when you take out the policy. Under the rules this can be anytime after you turn 50, but most opt for either 60 or 65. Look for a scheme allowing for early retirement without penalty - a lot of pensions will charge penalties if you want to retire early.